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Friday, December 31, 2010

A Toast: Here's to making the Greenback Serious Money in 2011

The English once upon a time took their money seriously. Ron Paul takes our money seriously. If he followed English tradition, Paul would have the chief moneyer's (Ben Bernanke's) private parts lopped off for his debasement of the U.S. dollar.

Underbelly:
That Bernanke Fella is One Brave Dude -- Underbelly's Minnesota bureau reports that some people take their money seriously:

In this year, before Christmas, King Henry sent from Normandy to England, and commanded that all the moneyers that were in England should be deprived of their members; that was the right hand of each, and their testicles beneath. That was because the man that had a pound could not buy for a penny at a market. And the bishop Roger of Salisbury sent over all England, and commanded them all that they should come to Winchester at Christmas. When they came thither they were taken one by one, and each deprived of the right hand and the testicles beneath. All this was done within the twelve nights; and that was all with great justice, because they had fordone all the land with their great quantity of false money which they all bought.

The Anglo-Saxon Chronicle, p. 221 (year 1125).
(Edited, with a Translation, by Benjamin Thorpe, Vol. II
(London: Longman, Green, Longman,and Roberts, 1861)
via:
Brad DeLong:
I Hear Ron Paul Is Hiring Buce of Underbelly and Roger of Salisbury to do Federal Reserve Oversight

Wednesday, December 15, 2010

Ron Paul v. The Fed

Ron Paul goes after the "obscene" Federal Reserve in this timely Fortune interview. Considered a fringe guy for years, Paul now gaining support from the mainstream. The fringe lunatics here at Johnsville support his "End the Fed" mission.

Fortune.com:
Will the Fed be able to survive Ron Paul? -- No doubt Paul's views fall outside the mainstream. At times, his thoughts are arguably off-putting and easy to brush off as extremist political rhetoric. Even Libertarians don't always see eye-to-eye with the Texas politico.

Lately though Paul's views are garnering the attention that he and supporters have long been waiting for. Earlier this month, Paul was picked to head the House subcommittee on domestic monetary policy. That means he will help oversee the body he's opposed to -- the Federal Reserve -- as well as currency and the dollar's value...

Do you want to end the Fed?
Well, I don't expect to. The Fed's going to end itself when they destroy the system. So yes I would end the Fed but I would do it gradually and have a transition. I would let people voluntarily opt out and not be forced to use depreciating money. Just think about how terrible it is that people make 1% or less on a certificate of deposit and banks get money for free and then they buy Treasury bills for 3% or 4% making billions of dollars. It's just not fair and people are waking up to this.
[...]
But some would consider ending the Fed is a bit extreme, don't you think?
No, I think printing money is extreme and crazy. I think the obscenity is allowing the Federal Reserve to print $3.3 trillion and we don't even know where it went. That to me is what's so extreme. And that's what the American people are waking up to. Government is extremely out of control. That is what I think everybody agrees on in the Tea Party movement.

Saturday, December 11, 2010

The Sticky-Wiki Bottomline: Can we handle the truth?

Why is the U.S. Government keeping its "secrets" in a shoe box on Hillary Clinton's front porch? And why are so many people upset when someone picks up the shoe box and looks inside? And is diplomatic gossip really worth being called secret? Rep. Ron Paul gets to the real heart of the Wikileaks story - can we and should we handle the truth?



Ron Paul's Nine Questions regarding Wikileaks:
Number 1: Do the America People deserve know the truth regarding the ongoing wars in Iraq, Afghanistan, Pakistan and Yemen?

Number 2: Could a larger question be how can an army private access so much secret information?

Number 3: Why is the hostility directed at Assange, the publisher, and not at our governments failure to protect classified information?

Number 4: Are we getting our moneys worth of the 80 Billion dollars per year spent on intelligence gathering?

Number 5: Which has resulted in the greatest number of deaths: lying us into war or Wikileaks revelations or the release of the Pentagon Papers?

Number 6: If Assange can be convicted of a crime for publishing information that he did not steal, what does this say about the future of the first amendment and the independence of the internet?

Number 7: Could it be that the real reason for the near universal attacks on Wikileaks is more about secretly maintaining a seriously flawed foreign policy of empire than it is about national security?

Number 8: Is there not a huge difference between releasing secret information to help the enemy in a time of declared war, which is treason, and the releasing of information to expose our government lies that promote secret wars, death and corruption?

Number 9: Was it not once considered patriotic to stand up to our government when it is wrong?

Thomas Jefferson had it right when he advised 'Let the eyes of vigilance never be closed'
via Mike Shedlock
----
related:
Ron Paul / House.gov:
Focus on the policy, not Wikileaks -- At its core, the Wikileaks controversy serves as a diversion from the real issue of what our foreign policy should be.  But the mainstream media, along with neoconservatives from both political parties, insist on asking the wrong question.  When presented with embarrassing disclosures about U.S. spying and meddling, the policy that requires so much spying and meddling is not questioned.  Instead, the media focus on how so much sensitive information could have been leaked, or how authorities might prosecute the publishers of such information...

Wednesday, December 8, 2010

Quivering Lip Bernanke and The Big Bank Theory

The Federal Reserve's Quantative Easing is making it quantitatively easy for the banks to prosper and the middle class to get screwed.

Ben Bernanke is increasing the cost of living for every American and he's doing it to bail out his bankster overlords. His lip quivering interview on CBS's 60 Minutes shows the man for what he is: a frightened clueless technocrat. But he is still "100 percent certain" that he's on the right course. Sure.

John Stewart rips into Bernanke's lying.

related:
60 Minutes / CBS News:
Fed Chairman Bernanke On The Econom

Michael Pento / Real Clear Markets:
Bernanke Delivered 2 Big Lies in Just "60 Minutes"

Todd Harrison / Minyanville:
The Year-End Bender: Trap Door or Melt-Up? -- Of course, Big Ben was also on 60 Minutes...

Perhaps I was sitting too close to my plasma but I could swear I saw a subtle quiver in Mr. Bernanke's lower lip. We won't quibble over the content or his message -- we’ve done that in spades, and we'll do it some more. The fact that the FOMC PR is in overdrive is perhaps all we need to know...
----
Zero Hedge:
The Federal Reserve: America’s Fourth Branch of Government -- The Federal Reserve is America's Fourth Branch of government and Ben Bernanke is, in effect, the economic czar of the country. The Fourth Branch? The Fed and the Fed alone has the power to determine how much money should be in the economy. Such vast power over our lives makes the Fed a de facto fourth branch of government. Yet, its powers are not defined by the Constitution, and neither the chairman nor senior officials are elected by the people...

----
Bloomberg BusinessWeek:
Bernanke and Geithner Fight Back -- How the Federal Reserve chairman and Treasury Secretary are battling to defend the Fed's latest moves—and preserve its independence...

Who Loves Bernanke?

The political attacks on the Fed—once the most sacrosanct of government institutions—started slowly, with Tea Party-backed candidates such as Republican Rand Paul, running for the U.S. Senate in Kentucky, campaigning against the central bank. When Bernanke announced round two of quantitative easing (or QE2, as it became known) on the day after the election, the response was swift. Indiana Representative Mike Pence, a conservative bellwether and possible 2012 Presidential candidate, released a statement accusing the Fed of "masking our fundamental problems by artificially creating inflation." A few days later, former Alaska Governor Sarah Palin, the unofficial leader of the GOP's Tea Party wing, posted on her Twitter account that the Fed was planning to "print $ out of thin air."

The Fed's $600 Billion Spending Spree
----
Bernanke: What a Difference 21 Months Make - Caroline Baum, Bloomberg
Arrogance: Ben Bernanke's Big Problem - Zachary Karabell, The Daily Beast
In Bernanke We Trust? Take a Look at His History - Doug Kass, TheStreet

Thursday, December 2, 2010

Russia a virtual “Mafia State” ... Russia putting crimelords to work on behalf of its interests

The above title is clipped from one of the WikiLeak.org, US Government (USG) cables now online. This document was classified Secret, was dated February 8, 2010, and originated from the U.S. Embassy in Madrid, Spain. The main source of the information is a Spanish prosecutor. The name of a company where the Russian Mafia has a "sizeable investment" has been redacted. Also, paragraph #6 seems to have disappeared? The main idea of the report is that Belarus, Chechnya and Russia are virtual “mafia states,”  and that the Russian security services and the Russian Mafia have become intertwined. It is very interesting reading. Some snips follow, note: OC = Organized Crime.

The Guardian in the United Kingdom also highlighted this document, title: Russia is virtual 'mafia state', says Spanish investigator

WikiLeaks.org:
Reference ID: 10MADRID154
Created: 2010-02-08 11:11
Released: 2010-12-01 21:09
Classification: SECRET//NOFORN
[NOFORN — Distribution to non-US citizens is prohibited, regardless of their clearance or access permissions.]
Origin: Embassy Madrid

Spanish National Court Prosecutor Jose “Pepe” Grinda Gonzalez = Grinda

¶4. (C//NF) Grinda stated that he considers Belarus, Chechnya and Russia to be virtual “mafia states” and said that Ukraine is going to be one. For each of those countries, he alleged, one cannot differentiate between the activities of the government and OC groups.
//Identifying The Scope of The Threat the Russian Mafia Poses//

¶5. (C) Grinda suggested that there are two reasons to worry about the Russian mafia. First, it exercises “tremendous control” over certain strategic sectors of the global economy, such as aluminum. He made a passing remark that the USG has a strategic problem in that the Russian mafia is suspected of having a sizable investment in XXXXXXXXXXXX 6. (S//NF) The second reason is the unanswered question regarding the extent to which Russian PM Putin is implicated in the Russian mafia and whether he controls the mafia’s actions. Grinda cited a “thesis” by Alexander Litvinenko, the former Russian intelligence official who worked on OC issues before he died in late 2006 in London from poisoning under mysterious circumstances, that the Russian intelligence and security services - Grinda cited the Federal Security Service (FSB), the Foreign Intelligence Service (SVR), and military intelligence (GRU) - control OC in Russia. Grinda stated that he believes this thesis is accurate. (COMMENT: See Ref B on a reported meeting between Litvinenko and the Spanish security services shortly before his death.) Grinda said that he believes the FSB is “absorbing” the Russian mafia but they can also “eliminate” them in two ways: by killing OC leaders who do not do what the security services want them to do or by putting them behind bars to eliminate them as a competitor for influence. The crimelords can also be put in jail for their own protection.

¶7. (S//NF) Grinda said that according to information he has received from intelligence services, witnesses and phone taps, certain political parties in Russia operate “hand in hand” with OC. For example, he argued that the Liberal Democratic Party (LDP) was created by the KGB and its successor, the SVR, and is home to many serious criminals. Grinda further alleged that there are proven ties between the Russian political parties, organized crime and arms trafficking. Without elaborating, he cited the strange case of the “Arctic Sea” ship in mid-2009 as “a clear example” of arms trafficking.

¶8. (S//NF) Grinda said what he has read from 10-12 years’ worth of investigations on OC has led him to believe that whereas terrorists aim to substitute the essence of the state itself, OC seeks to be a complement to state structures. He summarized his views by asserting that the GOR’s strategy is
MADRID 00000154 003.2 OF 005
to use OC groups to do whatever the GOR cannot acceptably do as a government. As an example, he cited Kalashov, whom he said worked for Russian military intelligence to sell weapons to the Kurds to destabilize Turkey. Grinda claimed that the GOR takes the relationship with OC leaders even further by granting them the privileges of politics, in order to grant them immunity from racketeering charges.

[...]

¶11. (C) Grinda also addressed the challenges of combating OC when it enjoys political, economic, social and - especially - legal protection. Grinda applauded a document provided by the U.S. delegation which addressed the important role the media can play in warning the public of OC’s activities and the threat that OC poses. The media can create an environment in which politicians would be reluctant to be friends with and do favors for mafia leaders, whom Grinda argued need to be seen as shady figures to be feared. Regarding legal protection, Grinda stated that a key factor in a government’s ability to combat OC depends on the extent to which the country’s best attorneys and law firms represent the mafia. In this regard, he asked rhetorically, “Why is Cuatrecases constantly defending Russian mafia members?” (COMMENT: Cuatrecases is one of Spain’s leading law firms. Its website, available in English, is www.cuatrecasas.com.)

[...]

¶15. (S//NF) Grinda described OC as “very powerful” in Georgia and claimed that the intertwined ties there between the government and OC began under former President Shevardnadze, when he alleges a paramilitary group served as a de facto shadow presidency. Although Grinda acknowledged improvements under current President Saakashvili, he said that there are still “limitations” in Georgia’s efforts to combat OC. Citing his personal experience in trying to secure Georgian assistance in the prosecution of Kalashov’s OC network in
MADRID 00000154 005.2 OF 005
Spain (See upcoming septel on the Kalashov trial), Grinda said that he feels “completely abandoned” and “betrayed” by Georgia and the explanations that he has received from Georgia regarding its lack of cooperation are “more pathetic than the betrayal itself.”

¶16. (S//NF) To illustrate his thoughts on the level of cooperation Spain receives from Russia, Grinda reviewed Spain’s efforts to arrest Tariel Oniani as part of Operation Avispa. (See Refs B, C and D.) In June 2005, Georgian-born Oniani fled to Russia hours before he was to be arrested in Spain and Russia gave him citizenship in April 2006, despite the fact that he had fled Spanish justice. Grinda alleged that the granting of citizenship was neither “innocent” nor “something done for free,” and was an example of Russia putting crimelords to work on behalf of its interests. Grinda alleged that the Russian Ministry of Interior and the FSB are closely protecting Oniani in Russia (even in prison). Following Oniani’s arrest in Moscow in June 2009, Spain requested his extradition for charges stemming from Operation Avispa, to which Russia replied that Oniani’s Russian citizenship prevented him from being extradited. Grinda said that Russia “always tells Spain that it will take away Oniani’s citizenship, but it never does.” Grinda said that, from his experience, “A virture of the Russian government is that it will always say and do the same thing: nothing.”

----
related:
Guardian:
WikiLeaks cables link Russian mafia boss to EU gas supplies -- Gas supplies to Ukraine and EU states are linked to the Russian mafia, according to the US ambassador in Kiev.

His cable, released by WikiLeaks, followed statements by the then prime minister of Ukraine, Yulia Tymoshenko, to the BBC that she had "documented proof that some powerful criminal structures are behind the RosUkrEnergo (RUE) company"...

Wednesday, December 1, 2010

Thoughts about the Federal Reserve/Central Bankers

Paul Volcker, former Chairman of the Federal Reserve (1979-1987):

"I don't get it,"... By setting 2% as an inflation objective, the Fed is "telling people in a generation they're going to be losing half their purchasing power."Calculated Risk, 2009
Thomas Jefferson:
"if the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and the corporations which grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered."
"I sincerely believe that banking institutions are more dangerous to our liberties than standing armies. The issuing power should be taken from the banks and restored to the people to whom it properly belongs."
Abraham Lincoln:
"The money power preys upon the nation in times of peace and conspires against it in times of adversity. It is more despotic than monarchy, more insolent than autocracy, more selfish than bureaucracy."
James Madison:
"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance."

Rep. Charles August Lindberg (father of Charles Lindberg):
"The financial system [...] has been turned over to the Federal Reserve Board. That board administers the finance system by authority of [...] a purely profiteering group. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people's money."

"This [Federal Reserve Act] establishes the most gigantic trust on earth. When the President Woodrow Wilson signs this bill, the invisible government of the monetary power will be legalized....the worst legislative crime of the ages is perpetrated by this banking and currency bill."
Sen.Barry Goldwater:
"Most Americans have no real understanding of the operation of the international moneylenders. The accounts of the Federal Reserve Board have never been audited. It operates outside the control of Congress and manipulates the credit of the United States."
Rep. Ron Paul:
"Nothing good can come from the Federal Reserve... It is the biggest taxer of them all. Diluting the value of the dollar by increasing its supply is a vicious, sinister tax on the poor and middle class."

The Madness of a Lost Society



h/t: World Economy News

Friday, November 26, 2010

Wednesday, November 24, 2010

The Flawed Failing Fed

Items of Interest:

James A. Bacon / boomergeddon.us / Washington Times:
Bernanke's raid on the middle class -- Fed action will reward the profligate and punish the prudent

Here's one fact that is indisputable: The intent of Quantitative Easing 2 (QE2), as Fed Chairman Ben Bernanke's initiative is known, is to push intermediate- and long-term interest rates even lower than they already are. Here is a conclusion that can be stated with certainty: Lower interest rates will bail out the profligate and punish the prudent.

The ranks of the profligate include the world's largest debtor, the U.S. government, and the irresponsible risk-takers, namely the big banks and investment houses, that helped finance trillions of dollars of residential and commercial real-estate projects that either have gone bad or soon will. Lower interest rates will reduce the United States' borrowing costs by billions of dollars a year, masking the dangers of an ever-escalating debt, and will pump up the profitability of the very same banks that plunged the world economy into a recession.

Who pays for QE2? The middle-class stiffs who have worked all their lives, played by the rules, refrained from borrowing money they could not repay and socked away money for retirement...

-----
Stephen Roach / Financial Times:
Time to Recast the Fed's Flawed Mandate -- The Federal Reserve’s grand experiment is a flop. Not only has the second round of quantitative easing roiled markets, but it has become a lightning rod for debate in Washington, academia, and in policy and political circles around the world. The US central bank’s uncharacteristic defensiveness has only deepened the suspicion – putting over 30 years of hard-won credibility and independence at risk. Sadly, this backlash is well founded. The Fed is running a real risk of destabilising a still precarious post-crisis world...
-----
Lawrence A. Hunter / Forbes:
Save The Dollar, Not The Fed -- Remove all the Federal Reserve's discretion, not just half of it...

the Fed has actually feathered the nest of the banking cartel it created and produced a century of monetary instability and ancillary economic problems.

The real challenge is to remove both the Fed's mandates and its discretionary monetary authority along with them, and replace them all with a simple statutory directive to calibrate dollar liquidity so as to maintain the dollar price of gold within a narrow band around a statutory gold price that defines the dollar. Any other legislative "solution" simply exonerates the Fed from responsibility and gives them more cover to fail. Indeed, diverting attention from the real problem and the real solution is a classic instance of playing the useful idiot on behalf of the real culprit.

The objective is simple and straightforward: Save the dollar, not the Fed. Remove all its discretion, not just half of it.
-----
John Carney / CNBC:
Why the Fed Plan Is Failing: We’re All Austrians Now -- It’s no accident that Austrian economics is newly popular. It provides the best explanation for the business cycle we just lived through... I think that we may have entered a new era.

We may all be Austrians now... If I’m right about this, it could mean that Ben Bernanke’s plans to push along the recovery through further easing could be stymied—or at least delayed. I’m not sure how long business will be able to hold out against the lure of low interest rates—especially as investors push banks and businesses to put the money on their balance sheets to work. But the downturn could last much longer than history would suggest...
----
Naked Capitalism:
The Question Isn’t Whether the Fed Should Be Stripped of Its Mandate to Maximize Employment … The Question Is Whether the Fed Has Too Much Power -- So the problem isn’t the Fed’s dual mandate … the problem is that the Fed has too much power. And the Fed has wielded that power to save its shareholders (the big banks), at the expense of Main Street and the real economy...
----
John Hussman / Hussman Funds:
Outside the Oval / The Case Against the Fed -- Bernanke offered a defense of QE2 last week in Europe that was reported as "coming out swinging," but what he swung before the world was ignorance. Bernanke correctly observed that quantitative easing was capable of "moving asset prices significantly." But he incorrectly said that "we don't know what effect this will have on the real economy." In fact, we do know. The elasticity of GDP growth to stock market changes can be easily estimated to be on the order of 0.05% or less, and transitory at that. In other words, a boost to the stock market isn't interpreted by consumers as "permanent income" or stable wealth that should be consumed. Since QE2 doesn't operate on any constraint in the credit markets that is binding, it is simply a way to blow asset bubbles, and nothing more...
----
Barron's:
Bernanke Turns His Game to Defense -- The Fed chief shoots back at critics of his policy. Will the bond market be convinced? ...
----
Paul Krugman / NY Times:
Ride, Bernanke, Ride
----
Bud Conrad / SafeHaven:
Bernanke Is Making the Crisis Worse -- The Fed is a corrupt and powerful institution, and Chairman Bernanke is making the global crisis worse. His new speech given last week in Europe was terribly misguided and will upset markets as the Chinese and Germans won't ignore his challenges. Bernanke's interpretations of the markets have been wrong since before he was appointed to head the Fed, and his actions are doing nothing but aggravating the situation...

Monday, November 22, 2010

Tuesday, November 16, 2010

Stopping Bernanke's QE 2 Toxic Sludge

The world does not like the Ben Bernanke, Federal Reserve Quantitative Easing scheme. It's like a toxic sludge of greenbacks that will leak out out of the US economy spreading inflation around the world. People here in the US and abroad are taking steps to stop the Fed from doing more damage.

Bloomberg:
Senate's Corker Favors Ending Fed `Dual Mandate' to Focus on Stable Prices -- A Republican member of the Senate Banking Committee called for the Federal Reserve to focus solely on price stability rather than its “dual mandate” to fight inflation and maintain full employment.

Tennessee Senator Bob Corker released his statement a day after House Republican Mike Pence introduced legislation to restrict the Fed’s activities to inflation fighting.

The central bank has embarked on a program of purchasing $600 billion in Treasuries to inject more money into the economy and promote job growth.

“It is time that we work to clarify the mandate of the Federal Reserve,” Corker said in a statement issued a day after he met with Fed Chairman Ben Bernanke. “Providing our central bank with a clear and explicit focus on keeping inflation low will serve America better than the broader mandate approach we have today.”

Corker’s statement said he questioned Bernanke “on recent actions by the Fed.”...

----
Corker says the Fed's dual mandate makes it "bipolar". That is exactly what Ben Bernanke is suffering from: bipolar disorder.  One symptom of a manic episode per Wikipedia:
sufferers may go on spending sprees...
----
discussion:

ZeroHedge.com:
Bob Corker Joins Chorus Seeking End To Fed's Mandate Seeking Maximum Employment -- Bob Corker has just come out with a statement urging a change to the Fed's mandate, removing the entire "maximum employment" clause. This is possibly the biggest news for the Fed since 1977, and would effectively end the Fed's supreme reign over the US economy, as Bernanke will no longer have the fall back of keeping rates at zero just to get unemployment back to some imaginary number...
----
David Goldman / Inner Workings:
Deflation As the World Rebuffs the Fed -- 
In forty years of watching financing markets, I have seen nothing like the global jeer at the Fed’s proposed quantitative easing–not, in any case, since the US de-linked the dollar from gold in 1971. Even in 1980, when then Fed chairman Paul Volcker returned from the October IMF meeting in Belgrade and pushed the fed funds rate into double digits, criticism of the Fed were muted, and made behind closed doors. Now the German finance minister is calling the Fed “clueless” in the newspapers and the Asians are threatening exchange controls.

In any number of ways, the market is telling the Obama administration that it can’t keep expanding US debt indefinitely. That was the message from the president’s bi-partisan Deficit Commission last week, which called the debt expansion a “cancer.” That was the message from China’s leading rating agencies, which downgraded US debt to A+. That was the message from Moody’s, which threatened to put Treasuries on negative watch and possibly remove their AAA rating. And that was the message from the G20, which threatened to erect exchange controls to keep unwanted dollars out.

QE2 has turned into Titanic One. The Obama administration and the Fed have run into an iceberg. Quantitative easing did no good for the US economy–which means the rest of the world would obtain no benefit from additional exports to the US–but it played hob with markets around the world.

Governments are out of capacity to spend...
----
Bloomberg:
Bernanke's `Cheap Money' Spurs Corporate Investment Outside U.S. -- Southern Copper Corp., a Phoenix- based mining company that boasts some of the industry’s largest copper reserves, plans to invest $800 million this year in projects such as a new smelter and a more efficient natural-gas furnace.

Such spending sounds like just what the Federal Reserve had in mind in 2008 when it cut interest rates to near zero and started buying $1.7 trillion in securities to spur job growth. Yet Southern Copper, which raised $1.5 billion in an April debt offering, will use that money at its mines in Mexico and Peru, not the U.S...

Monday, November 15, 2010

Earth to Bernanke: Please Stop Quantitative Easing (QE 2)

The ground swell of people opposing Ben Bernanke's crazy Quantitative Easing (QE 2) program grows. Today 23 high profile economic and financial leaders wrote an open letter to Bernanke in the Wall Street Journal. They don't want QE 2. The Federal Reserve in responding said, they are "confident that it has the tools to unwind these policies at the appropriate time." Trusting that Ben Bernanke can put the currency debasement/inflation genie back in bottle is not a risk the country can afford to take.

Wall Street Journal:
Open Letter to Ben Bernanke --

We believe the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing”) should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.

We subscribe to your statement in the Washington Post on November 4 that “the Federal Reserve cannot solve all the economy’s problems on its own.” In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.

We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.

The Fed’s purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.

Cliff Asness
AQR Capital

Michael J. Boskin
Stanford University
Former Chairman, President’s Council of Economic Advisors (George H.W. Bush Administration)

Richard X. Bove
Rochdale Securities

Charles W. Calomiris
Columbia University Graduate School of Business

Jim Chanos
Kynikos Associates

John F. Cogan
Stanford University
Former Associate Director, U.S. Office of Management and Budget (Reagan Administration)

Niall Ferguson
Harvard University
Author, The Ascent of Money: A Financial History of the World

Nicole Gelinas
Manhattan Institute & e21
Author, After the Fall: Saving Capitalism from Wall Street—and Washington

James Grant
Grant’s Interest Rate Observer

Kevin A. Hassett
American Enterprise Institute
Former Senior Economist, Board of Governors of the Federal Reserve

Roger Hertog
The Hertog Foundation

Gregory Hess
Claremont McKenna College

Douglas Holtz-Eakin
Former Director, Congressional Budget Office

Seth Klarman
Baupost Group

William Kristol
Editor, The Weekly Standard

David Malpass
GroPac
Former Deputy Assistant Treasury Secretary (Reagan Administration)

Ronald I. McKinnon
Stanford University

Dan Senor
Council on Foreign Relations
Co-Author, Start-Up Nation: The Story of Israel’s Economic Miracle

Amity Shlaes
Council on Foreign Relations
Author, The Forgotten Man: A New History of the Great Depression

Paul E. Singer
Elliott Associates

John B. Taylor
Stanford University
Former Undersecretary of Treasury for International Affairs (George W. Bush Administration)

Peter J. Wallison
American Enterprise Institute
Former Treasury and White House Counsel (Reagan Administration)

Geoffrey Wood
Cass Business School at City University London

A spokeswoman for the Fed responded:

“As the Chairman has said, the Federal Reserve has Congressionally-mandated objectives to help promote both increased employment and price stability. In light of persistently weak job creation and declining inflation, the Federal Open Market Committee’s recent actions reflect those mandates. The Federal Reserve will regularly review its program in light of incoming information and is prepared to make adjustments as necessary. The Federal Reserve is committed to both parts of its dual mandate and will take all measures to keep inflation low and stable as well as promote growth in employment. In particular, the Fed has made all necessary preparations and is confident that it has the tools to unwind these policies at the appropriate time. The Chairman has also noted that the Federal Reserve does not believe it can solve the economy’s problems on its own. That will take time and the combined efforts of many parties, including the central bank, Congress, the administration, regulators, and the private sector.”
-----
Reuters:
Lacker says Fed's new easing push too risky -- Richmond Federal Reserve President Jeffrey Lacker indicated on Sunday he opposed the central bank's new round of monetary easing, saying he believed the policy was potentially dangerous and likely ineffective...
----
Wall Street Journal:
Fresh Attack on Fed Move -- The Federal Reserve's latest attempt to boost the U.S. economy is coming under fire from Republican economists and politicians, threatening to yank the central bank deeper into partisan politics.

A group of prominent Republican-leaning economists, coordinating with Republican lawmakers and political strategists, is launching a campaign this week calling on Fed Chairman Ben Bernanke to drop his plan to buy $600 billion in additional U.S. Treasury bonds...
discussion:
Jennifer Rubin / Commentary:   RE: A Significant Letter
Jon Talton / Seattle Times:   Checking out the Fed bashers
Doug Brady / Conservatives4Palin.com:  More Evidence Governor Palin Is Correct About Rising Food Prices …
Myglesias / Yglesias:  Monetary Mysteries  —  A bunch of conservative economists …
Lew Rockwell / LewRockwell.com Blog:   Mises-Hayek-Hazlitt-Rothbard- Ron Paul
Economics Policies for the 21st Century:   An Open Letter to Ben Bernanke
John McCormack / Weekly Standard:   Conservatives vs. the Fed
Jessica Pressler / New York Magazine:   Republicans Plan Defeat of Successful Stimulus Plan
Kevin Drum / Mother Jones:   “Outspoken and Unified" 
ZeroHedge: 22 Luminaries (And Dick Bove) Sign Open Letter To Fed Demanding End Of QE2
James Pethokoukis:  Bernanke probably agrees with the anti-QE2 letter
----
Inflation is not coming, it's already here!

CNBC.com:
Secret Walmart Survey Shows Inflation Already Here -- There might not have been a second round of quantitative easing, if Federal Reserve Chairman Ben Bernanke shopped at Walmart.

A new pricing survey of products sold at the world’s largest retailer showed a 0.6 percent price increase in just the last two months, according to MKM Partners. At that rate, prices would be close to four percent higher a year from now, double the Fed’s mandate...
----
BusinessWire.com:
DHL Express U.S. Announces 2011 Rate Increases -- DHL, the world’s leading logistics company, today announced a general average price increase of 5.9% for its U.S. export and import services...

DHL Express U.S. adjusts its prices annually, taking into account inflation and the rising network costs of providing air express services. The general average price increase applies to all customer accounts where contracts allow...

Saturday, November 13, 2010

The Quantitative Easing Explained

The Ben Ber-nank will blow us all up.



via Washington's Blog

discussion
:

YouTube.com
Quantitative Easing Explained -- highest rated comment by Manofbegging:
The federal reserve is a crime syndicate. RISE UP!
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ZeroHedge:
Quatitative Easing Explained --

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Dealbreaker.com:
Quantitative Easing Explained By Furry Animals --  
How come MSM can't understand this?
related:
xtranormal.com:  Local Trader
----
Rants and Reason blog:
Quantitative Easing Explained, or in other words: “The Fed is f**king awful!!”
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Truth is Treason blog:
Quantitative Easing Explained & the Ben Ber-Nank --
... This is a must-watch. Period.
----
Inside the mind of the currency debaser Ber-nank.

FederalReserve.gov
Ben Bernanke's "Printing Press" Speech November 21, 2002 -- Deflation: Making Sure "It" Doesn't Happen Here
... the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

Of course, the U.S. government is not going to print money and distribute it willy-nilly (although as we will see later, there are practical policies that approximate this behavior)...

Friday, November 12, 2010

Screwing America: Ben Bernanke, Federal Reserve and Rocket Dockets

Nassim "Black Swan" Taleb slaps down pointed headed academics like Bernanke, who is determined to blow up the US dollar and bring down the US economy.



Zero Hedge:
Taleb's thoughts on Bernanke and the Fed:

"It seems to me, from what I see, that these people [Bernanke] do not understand risk.”“Did [Bernanke] see the crisis? Did he see the accumulation of hidden risk in the system? No. He was flying the plane and he crashed the plane…"

"[Bernanke] underestimated risk. He is sort of risk-blind from his analysis of the situation before the crisis when he deemed it was the right moderation."

"[Bernanke] reminds me of LTCM people. They had brilliant people with great academic records and they blew up the fund and almost blew up Wall Street….So here we have a symptom that you notice in economic academia of the use of the wrong tools that underestimate risk. I don’t mind someone saying this is a policy, these are the risks, these are the returns, let’s see how it works. Bernanke does not seem to be taking that approach. He is someone who talks about returns without talking about risk. It’s identical to a pilot who is talking about speed -- not talking about safety. The measures he is using, this quantitative easing, may work but should it fail the risks are humongous.”

Taleb on what he believes the Fed should be doing instead:

"It’s not a Fed problem, it’s a deficit problem."

"People want a free lunch. It reminds me of people who lose money in the market and when I was an option trader, people would call me up and ask for a magic way to make their money back. That’s what the Obama team is doing. Instead of accepting that we have a risk problem, we have lost money, and you don’t double up with future generation’s money either by increasing deficits and or debasing the currency. You have to face the saying that there is no free lunch."

“The main problem was risk in the system. You cannot solve a risk problem by risky methods. You have to accept…We’re forcing the Greeks to reduce; ok you spent money you didn’t have; now you’re going to cut down. We're going to have to face the same thing. And you’re going to take pain, it’s painful, but that's life."

"The Fed's business should be price stability; unfortunately their business seems to be price instability."
related:
Chris Martenson / TheStreet:
QE2 Has Lit the Fuse -- QE2 has been described by several major trading partners as "clueless," "abusive," "absurd," and even resulted in a lecture from Greece on the subject of printing. By the time you are getting lectured by Greece on monetary actions it might be time for a bit of self-reflection...

CNN:
Bernanke's worst nightmare: Ron Paul -- His harshest critic on Capitol Hill, Rep. Ron Paul of Texas, is about to become one of his overseers...

Bloomberg Businessweek:
Why Oil Could Top $100 a Barrel -- The weakening dollar could trigger a steady rise in the price of crude, sending it over $100 next year
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The Fed is allowing the big banks to game their system of buying Treasury bonds as part of its Quantitative Easing (QE 2) policy. This lets the Wall Street insiders reap billions in profits at the taxpayers expense.
Zero Hedge:
Is QE2 A Stealthy $90 Billion Gifting Scheme To The Primary Dealers? -- the Fed is effectively allowing PDs [Primary Dealers] to pocket a huge bid/offer spread, which assuming a total size of ~$800 billion (low estimate) of all USTs bought over the (initial) life of QE2, aka QE2.5 and higher pre-extensions, amounts to $50 billion over the next 8 months. Since the money paid out is certainly not that of Brian Sack, but of the US taxpayers, to which the FRBNY [Federal Reserve Bank of NY] has repeatedly demonstrated it has no fiduciary obligation, one can see why it is prudent to ask just how much leakage is occurring as the Fed is monetizing. Surely the Chairman can see why at a time when Wall Street is about to pocket $150 billion in bonuses, America can be a little concerned with the possibility that QE2 in addition to being a blatant debt monetization scheme, is also a direct taxpayer funding mechanism to the Primary Dealers. We hope Congressman Paul will demand an answer to the these questions at first opportunity...
----
Rocket Dockets are the fast track to covering up massive bank fraud.

Matt Taibbi / Rolling Stone:
Courts Helping Banks Screw Over Homeowners -- Retired judges are rushing through complex cases to speed foreclosures in Florida

The rocket docket wasn't created to investigate any of that. It exists to launder the crime and bury the evidence by speeding thousands of fraudulent and predatory loans to the ends of their life cycles, so that the houses attached to them can be sold again with clean paperwork. The judges, in fact, openly admit that their primary mission is not justice but speed. One Jacksonville judge, the Honorable A.C. Soud, even told a local newspaper that his goal is to resolve 25 cases per hour. Given the way the system is rigged, that means His Honor could well be throwing one ass on the street every 2.4 minutes...

Tuesday, November 9, 2010

Knock, Knock, Knocking on Ben Bernanke

Items of Interest:

Larry Kudlow / Real Clear Markets:
The World Revolts Against Bernanke's QEII -- The great Bernanke QE2 debate continues to heat up. In the run-up to the G-20 meetings, China, Russia, Germany, and others are all coming out against the Federal Reserve's quantitative-easing agenda. They don't want hot-money excess dollars to flow into their higher-yielding currencies.

The assault against Bernanke's easy money has reached such fever that President Obama felt it necessary to defend the $600 billion in new-money printing in a news conference in India.

Meanwhile, World Bank president Robert Zoellick has actually called for putting gold back into global money...

And then there's Kevin Warsh's opus op-ed in Monday's Wall Street Journal. I have written about Warsh in the past, and his sound-thinking views. Taking a bit of a shot at Bernanke's QE2, the Fed board member basically says: Look, you want better growth, reform the tax code and stop regulating. "The Federal Reserve is not a repair shop for broken fiscal, trade, or regulatory policies," he writes.

But in the key part of his op-ed, Warsh calls for a strictly limited QE2, not an open-ended commitment...

related:
CBN.com:
Fed's $600 Billion Move Sparks Global Backlash
ZeroHedge:
Mark Fisher Slams Bernanke: "QE Is Going To End Bad...This Is Going To Be The Bubble Of All Bubbles"
ZeroHedge:
Betting On An Infinite Bernanke Put? Not So Fast, Says Fed Governor Kevin Warsh
----
David Goldman / Inner Workings:
Volcker Says QE2 Won’t Help (Make Him Economic Czar!) -- A couple of weeks ago, Larry Kudlow asked me on his TV show whom I would pick to replace Larry Summer. It took a millisecond to respond, “Paul Volcker!” And I was pleased to see the AP report that he doesn’t believe that Fed bond purchases will help the economy...
-----
Alan Meltzer / WSJ Editorial:
Milton Friedman vs. the Fed -- The Nobel laureate would never have endorsed increasing inflation to stimulate the economy...

John Taylor [Stanford Univ. / Hoover Institute] / Economics One blog::
Empirical Questions About the Anticipation Effects of QE2 -- No doubt there will be many empirical studies evaluating the impact of the Fed’s November 3 decision to begin another dose of quantitative easing (QE2). Ben Bernanke gave his first assessment of the impact of QE2 in an op-ed yesterday in the Washington Post. He argued that QE2 started working even before the decision on November 3...

In any case these interest rate and stock price data raise doubts about the narrative that long-term interest rates fell and stock prices rose in anticipation of QE2.

----
via John Tayor / Grant's Interest Rate Observer
-----
Robert Costa / National Review:
Palin to Bernanke: ‘Cease and Desist’  -- On Monday, in a keynote address at a trade-association convention in Phoenix, Palin will urge Fed chairman Ben Bernanke to “cease and desist” his “pump priming.” The United States, she says, “shouldn’t be playing around with inflation.”

Here are snippets from Palin’s prepared remarks obtained by National Review Online:
I’m deeply concerned about the Federal Reserve’s plans to buy up anywhere from $600 billion to as much as $1 trillion of government securities. The technical term for it is “quantitative easing.” It means our government is pumping money into the banking system by buying up treasury bonds. And where, you may ask, are we getting the money to pay for all this? We’re printing it out of thin air...
----
discussion:
Sudeep Reddy / Real Time Economics:   Sarah Palin's QE2 Criticism Includes Inflation Hyperbole
New York Sun:   Palin v. Bernanke
Andy Barr / The Politico:   Sarah Palin knocks Fed move
Doug Brady / Conservatives4Palin.com:   QE2: That 70s Show Redux? …
Jared A. Favole / Washington Wire:   Palin Takes on Bernanke
Alexander Mooney / CNN:   Palin's new target: Bernanke
First Read / msnbc.com:   GOP watch: A ‘missed opportunity’
----
Huffington Post:
'Ben Bashing' Begins As Sarah Palin, Newt Gingrich Take On Bernanke -- Ben Bashing has begun, and this time it's not a fringe issue, but a central focus of our frightened, blame-spreading Great Recession politics.

At this point in America, you can tell when a new Enemy of the People has arrived: when Sarah Palin and Newt Gingrich race onto Twitter to denounce him.

They've now done that to Ben Bernanke, and the whole flock of Republican presidential wannabes is sure to follow...
----- 
Crazy:
"One person who can create $600 billion with the stroke of a pen... Inflation is taxation without representation..."-- Ron Paul

Friday, November 5, 2010

Celebrating 100 Years of Federal Reserve Power and Dollar Devaluation

Items of Interest:

The 100 year anniversary of the founding of the Federal Reserve is being celebrated at Jekyll Island, Georgia this weekend. The first Fed meeting in 1910 was a secret gathering of bankster conspirators and Washington insiders. They formulated a conspiracy to grab the financial cojones of the United States. Their evil conspiracy came to fruition in 1913, when Congress passed the Federal Reserve Act. It's been downhill for the dollar ever since then.

The dollar has dropped in value so it is now worth 4 cents and dropping in 2010, compared to 1913. In other words, the 1913 dollar was worth more than $25 in current dollars. Thank you very much.

old grocery prices, 1940s, Lincoln Nebraska
Grand Grocery Company. Lincoln, Nebraska, 1942.
----
International Business Times:
Fed returns to Jekyll Island -- Federal Reserve officials, including chairman Ben Bernanke, are going to Jekyll Island in Georgia this weekend to commemorate the 100th birthday of the Federal Reserve. This event, called "A Return to Jekyll Island: The Origins, History, and Future of the Federal Reserve," is hosted by the Federal Reserve of Atlanta...

Contrastingly, the November 1910 Jekyll Island meeting that gave birth to the Federal Reserve was shrouded in secrecy. According to author Edward Griffin, Forbes founder Bertie Charles Forbes said the event was so secret that the full names of the attendees were not mentioned once. Attendees of this "most secret expedition in the history of American finance" reportedly included the powerful Senator Nelson Aldrich and several leading bankers of the time...
----
Not just crackpot bloggers are calling the Fed names. The German finance minister calls Bernanke's QE 2 policy "clueless".

Irish Times:
US Federal Reserve's $600bn stimulus doomed to failure, says German minister -- The US Federal Reserve’s $600 billion injection is “dismal”, “clueless” and doomed to failure, according to German finance minister Wolfgang Schäuble.

In unusually sharp language, Mr Schäuble said Washington was mistaken to pump further billions into the US economy in the hope that it would encourage growth.

“With all due respect, my impression is that the US is at a loss as to what to do,” said Mr Schäuble.

“This isn’t about a liquidity shortage, so to say ‘we’ll throw $600 billion at it’, won’t solve the problem.” He found sharp words, too, over the ongoing currency unrest between the US and China.

Washington has accused Beijing of keeping the value of its yuan artificially low to help exports, but Mr Schäuble accused Washington of “pursuing the same goal with different instruments”...
-----
NY Times:
Fed Chief Defends Action in Face of Criticism -- The Federal Reserve chairman, Ben S. Bernanke, on Friday defended the central bank’s decision to inject $600 billion into the American economy, in the face of objections from European and Asian officials about the weakening of the dollar that is likely to result from the action...
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more discussion:
Robert Kuttner / Boston Globe:
Cheap Money Will Not Save the Economy

ZeroHedge:
How Ben Bernanke Sentenced The Poorest 20% Of The Population To A Cold, Hungry Winter

Jeremy Warner / Daily Telegraph:
The Age of the Dollar Drawing to a Close

Campbell Harvey /  TheStreet:
Why the Fed's QE2 Won't - and Can't - Work

Colin Barr, Fortune:
Bernanke Is Soft-Pedaling Quantitative Easing Risks

Editorial / Los Angeles Times:
Don't Blame Ben Bernanke, Blame Congress 

Sewell Chan / New York Time:
Bernanke Fearing Fate of Japan, Not Greece
----
Timeout for Amazing!

Wednesday, November 3, 2010

Glenn Beck Slams the Fed's Quantitative Easing

Ben Bernanke's announcement today of $600 billion of QE 2 (money printing) sparks criticism from many people. Experts from Joseph Stiglitz, the Nobel-winning economist, to Bill Gross, head of the bond-management giant, Pimco, have already predicted it will be either ineffectual or dangerous.

The dollar is in danger of losing 20 percent of its value over the next few years if the Federal Reserve continues unconventional monetary easing, Bill Gross, the manager of the world's largest mutual fund, said on Monday... Reuters
Glenn Beck takes this swipe at the Fed's Ponzi scheme:



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More thoughts about QE 2:

David Goldman / Inner Workings:
Dave’s Top 10 Reasons Why QE Won’t Help the Economy' --
[...]
3. Inflation, as even the Fed will admit, helps some people and hurts others. The idea is that it will help more people than it hurts by forcing investors to buy real assets. The kind of inflation that QE is likely to cause will have an almost entirely damaging impacta on the US. In fact, the devaluation of the dollar and the rise in raw materials prices will hurt every American household and most American businesses; it will benefit Middle East oil producers, Vladimir Putin, Aussie mining companies, and all sorts of people who don’t live in the United States.
[...]
1. It undermines the dollar’s world reserve currency role. That’s why gold keeps going up. If the US were Greece or Ireland, we’d be in front of the International Monetary Fund in sackcloth and ashes right now. But we’re the world’s only superpower, and the central banks of the rest of the world have to hold their reserves in dollars. Why? Because there isn’t enough of anything else (unless the price of gold were to go to $10,000 an ounce, which I doubt) and because they hate each other more than they hate us — at least for the moment. With Obama shrinking America’s strategic footprint and the Fed behaving like the neighbor whose septic tank overflows onto everyone else’s lawn, Washington is testing the world’s patience. It will have consequences.
----
Brad DeLong / Grasping Reality with Both Hands:
The Mountain Labored, and Gave Birth to a Mouse  —  The Federal Reserve says: … Greg Robb: … The five-year note carries an interest rate of 1.17% per year.  The Federal Reserve is thus changing the supply of assets by taking onto its own balance sheet... wait for it... wait for it …
discussion:
Paul Krugman:   QE2 Meh ...
Board of Governors of the Federal Reserve System:
For immediate release  — Press Release 
discussion:

Sudeep Reddy / Real Time Economics:   Q&A on QE2: What a Fed Move Would Mean
Ira Stoll / The Future of Capitalism:   The Fed Buys TIPS
Elizabeth Shell / Online NewsHour:   Fed to Engage in Second Round of Quantitative Easing
Daniel Indiviglio / The Atlantic Online:   Fed To Purchase $600 Billion in Treasuries
Pete Davis / Capital Gains and Games blogs:   QE2, Good Or Bad?  —  No, it's not the ocean liner.
Calculated Risk:   Comments on FOMC statement
New York Times:
Fed to Spend $600 Billion to Speed Up Recovery
discussion:
Wall Street Journal:
Fed to Buy $600 Billion of Treasurys
discussion:
Jeff Dunetz / YID With LID:   The Fed's $600 Billion Dollar Plan For Economic Suicide

Monday, November 1, 2010

Future of US Debt Problems

Item of Interest:

Citizens Against Government Waste / cagw.org:
CAGW Launches New Nationwide Ad Campaign -- On October 21, 2010, Citizens Against Government Waste (CAGW) unveiled a national ad addressing our country’s spending addiction, the dangers of relentless deficits, and the corrosive nature of our national debt.

This new ad, which features a chilling look at one potential future scenario if America continues on its current destructive fiscal trajectory, is a 2010 homage to “The Deficit Trials,” a 1986 ad that was produced by W.R. Grace & Co. For those who were able to view it, the ad caused a sensation; it was considered so controversial at the time that the networks refused to run it...

The new ad is part of an ongoing communications program in CAGW’s decades-long fight against wasteful government spending, increased taxes, out-of-control deficit spending, and a crippling national debt that threatens the future and survival of our country.


discussion:
James Fallows / The Atlantic Online: 
The Phenomenal ‘Chinese Professor’ Ad  —  Via Ben Smith of Politico, this amazing ad from “Citizens Against Government Waste,” which is the first spot from this campaign season you can imagine people actually remembering a decade from now.  “I'm not a witch” might be remembered as a novelty …

more:
Ben Smith / Ben Smith's Blog:   Behind the ‘Chinese Professor’
Dan Amira / New York Magazine:   Is This Really the Best Political Ad This Year?
Andrew Zarowny / Right Pundits:   New TV Ad - China Owns America! (Video)
Warner Todd Huston / Publius Forum:   As The Chinese Laugh at America, the Failed Nation...
Emi Kolawole / Washington Post:   Ad: China's going to take us over (Updated)
ZeroHedge: CHINA’S CREATIVE ACCOUNTING: USING DEBT AS A TOOL FOR ECONOMIC DEVELOPMENT

Wednesday, October 27, 2010

The Ruinous Cost of Fed Manipulation of Asset Prices

Items of Interest:

More criticism of the Federal Reserve.

The Ruinous Cost of Fed Manipulation of Asset Prices

Jeremy Grantham / GMO:
Jeremy Grantham's 3Q 2010 letter [pdf] -- The Ruinous Cost of Fed Manipulation of Asset Prices

My diatribe against the Fed’s policies of the last 15 years became, by degrees, rather long and complicated. So to make it easier to follow, a summary precedes the longer argument. (For an earlier attack on the Fed, see “Feet of Clay” in my 3Q 2002 Quarterly Letter.)

Purpose: If I were a benevolent dictator, I would strip the Fed of its obligation to worry about the economy and ask it to limit its meddling to attempting to manage inflation. Better yet, I would limit its activities to making sure that the economy had a suitable amount of liquidity to function normally. Further, I would force it to swear off manipulating asset prices through artificially low rates and asymmetric promises of help in tough times – the Greenspan/Bernanke put. It would be a better, simpler, and less dangerous world, although one much less exciting for us students of bubbles. Only by hammering away at its giant past mistakes as well as its dangerous current policy can we hope to generate enough awareness by 2014: Bernanke’s next scheduled reappointment hearing.

To Summarize:
  1. Long-term data suggests that higher debt levels are not correlated with higher GDP growth rates.
  2. Therefore, lowering rates to encourage more debt is useless at the second derivative level.
  3. Lower rates, however, certainly do encourage speculation in markets and produce higher-priced and therefore less rewarding investments, which tilt markets toward the speculative end. Sustained higher prices mislead consumers and budgets alike.
  4. Our new Presidential Cycle data also shows no measurable economic benefits in Year 3, yet point to a striking market and speculative stock effect. This effect goes back to FDR, and is felt all around the world.
  5. It seems certain that the Fed is aware that low rates and moral hazard encourage higher asset prices and increased speculation, and that higher asset prices have a beneficial short-term impact on the economy, mainly through the wealth effect. It is also probable that the Fed knows that the other direct effects of monetary policy on the economy are negligible.
  6. It seems certain that the Fed uses this type of stimulus to help the recovery from even mild recessions, which might be healthier in the long-term for the economy to accept.
  7. The Fed, both now and under Greenspan, expressed no concern with the later stages of investment bubbles. This sets up a much-increased probability of bubbles forming and breaking, always dangerous events. Even as much of the rest of the world expresses concern with asset bubbles, Bernanke expresses none. (Yellen to the rescue?)
  8. The economic stimulus of higher asset prices, mild in the case of stocks and intense in the case of houses, is in any case all given back with interest as bubbles break and even overcorrect, causing intense financial and economic pain.
  9. Persistently over-stimulated asset prices seduce states, municipalities, endowments, and pension funds into assuming unrealistic return assumptions, which can and have caused financial crises as asset prices revert back to replacement cost or below.
  10. Artificially high asset prices also encourage misallocation of resources, as epitomized in the dotcom and fiber optic cable booms of 1999, and the overbuilding of houses from 2005 through 2007.
  11. Housing is much more dangerous to mess with than stocks, as houses are more broadly owned, more easily borrowed against, and seen as a more stable asset. Consequently, the wealth effect is greater.
  12. More importantly, house prices, unlike equities, have a direct effect on the economy by stimulating overbuilding. By 2007, overbuilding employed about 1 million additional, mostly lightly skilled, people, not counting the associated stimulus from housing related purchases.
  13. This increment of employment probably masked a structural increase in unemployment between 2002 and 2007, which was likely caused by global trade developments. With the housing bust, construction fell below normal and revealed this large increment in structural unemployment. Since these particular jobs may not come back, even in 10 years, this problem may call for retraining or special incentives.
  14. Housing busts also help to partly freeze the movement of labor; people are reluctant to move if they have negative house equity. The lesson here is: Do not mess with housing!
  15. Lower rates always transfer wealth from retirees (debt owners) to corporations (debt for expansion, theoretically) and the financial industry. This time, there are more retirees and the pain is greater, and corporations are notably avoiding capital spending and, therefore, the benefits are reduced. It is likely that there is no net benefit to artificially low rates.
  16. Quantitative easing is likely to turn out to be an even more desperate maneuver than the typical low rate policy. Importantly, by increasing inflation fears, this easing has sent the dollar down and commodity prices up.
  17. Weakening the dollar and being seen as certain to do that increases the chances of currency friction, which could spiral out of control.
  18. In almost every respect, adhering to a policy of low rates, employing quantitative easing, deliberately stimulating asset prices, ignoring the consequences of bubbles breaking, and displaying a complete refusal to learn from experience has left Fed policy as a large net negative to the production of a healthy, stable economy with strong employment.
discussion:
ZeroHedge: Grantham On The Ruinous Cost Of The Fed's Manipulation Of Asset Prices

related:
ZeroHedge: Eric Sprott On Bonfire of the Currencies
David Kotok / Cumberland Advisors: Quant. Easing II: Yabba Dabba Doo!
Jeff Matthews: “QE 2” or “Ben’s Titanic”?
Laurence Kotlikof & Richard Munroe / Bloomberg: U.S. Debt Is Child Abuse
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MarketWatch:
QE2 a ‘Ponzi scheme’, says Pimco’s Gross -- The Federal Reserve’s highly anticipated plan to engage in quantitative easing to pump money into the economy is a “Ponzi scheme,” said Bill Gross, who manages the world’s biggest bond fund for Pimco.

The actions of the Fed, led by Chairman Ben Bernanke, will “likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment,” he wrote in a commentary posted on Pimco’s website Wednesday...
related:
Bill Gross / Pimco:
Run Turkey, Run -- Check writing in the trillions is not a bondholder’s friend; it is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme. Public debt, actually, has always had a Ponzi-like characteristic. Granted, the U.S. has, at times, paid down its national debt, but there was always the assumption that as long as creditors could be found to roll over existing loans – and buy new ones – the game could keep going forever...
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Peter Orszag, former Director of the Office of Management and Budget under President Obama, NY Times:
Sailing the Wrong Way with QE2? -- the net effect of “QE2” is similar to having the Treasury sell short-term T-bills and using the proceeds to buy back 10-year bonds. The result is thus that the average maturity of government debt held outside the government falls. (From a debt management perspective and given current interest rates, the Federal government should probably be lengthening the average maturity of debt held by the public rather than reducing it, but let’s not worry about that for now.)

What are the benefits of such a reduction in the average maturity of government debt in the current economic environment?

They’re quite limited for two reasons...
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The  Fed's Quantitative Easing (QE) will lead to a vicious currency war.

Michael Schuman / Time:
A Vicious Circle -- By increasing the amount of dollars in the world, the Fed would depress the greenback's value. Mere anticipation of the Fed's strategy has already weakened the dollar in global markets. That, in turn, places greater strain on the yuan. China's central bank would have to intervene on an even bigger scale by buying more and more dollars to stop the yuan rising in value. (On Oct. 19, the bank hiked its benchmark interest rate, signaling it would not fight potential inflation by allowing the yuan to appreciate.)

Can the U.S. force Beijing to loosen its grip on the yuan simply by generating more dollars? In theory, yes. The Fed has the ability to produce as many dollars as it wishes, potentially placing limitless pressure on China to let the yuan appreciate...
----
Another big problem with the Fed's Quantitative Easing (QE) money printing is "leakage". All the money the Fed creates leaks out of the United States and flows around the world to jack up asset prices.

Chris Ciovacco / Ciovacco Capital:  
Who Receives the Fed's Printed Money? -- To give a hypothetical example of how the Fed’s newly printed money can make its way around the globe...

Understanding the global footprints of the primary dealers and their clients allows us to visualize the broad geographic reach of the Fed’s printing press. Understanding the buying power and investment influence of large clients of the primary dealers, like sovereign funds, helps us understand how QE2 may potentially impact a wide range of markets from currencies to commodities...
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Wall Street Journal:
Fed Gears Up for Stimulus -- Fed Chairman Ben Bernanke's push to restart the bond-buying program—a form of monetary stimulus known as quantitative easing—has been greeted with deep skepticism among some of his colleagues. In some of his strongest words yet, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, said Monday that more expansive monetary policy was a "bargain with the devil."

In the next few months, internal opposition to Mr. Bernanke's approach could intensify as presidents of three regional Fed banks who have expressed skepticism about the plan—Narayana Kocherlakota of Minneapolis, Richard Fisher of Dallas and Charles Plosser of Philadelphia—take voting positions on the Fed's policy-making body. There are 12 regional Fed banks, and five voting seats on the Federal Open Market Committee rotate among them every year, with New York always keeping one.

Investors already expect Fed action. Stock prices have rallied since Mr. Bernanke broached the idea of bond buying in late August. But investors and analysts are divided on whether the gambit will work...

Bloomberg Business:
Fed Dissenter Hoenig Wages Lonely Campaign Against Easy Credit -- In Washington, he is the burr in Fed Chairman Bernanke’s saddle: the rogue heartland banker who keeps dissenting alone -- for the sixth straight time on Sept. 21 -- to protest the Fed’s rock- bottom interest-rate policy. Hoenig warns that the Bernanke majority is setting the country up for an as-yet-unknown asset bubble: the next dot-com or subprime craze. He can’t tell yet where the boom-and-bust will materialize, but he can feel it coming, like a Missouri wheat farmer senses in his bones the storm that’s just over the horizon...

Hoenig harbors powerful misgivings over not dissenting more often and more forcefully during the Greenspan years. “He regrets going along with the votes when Alan Greenspan was chairman to get rates so low and keeping them so low so long,” says his friend Fisher...

Another reason Hoenig wants to end super-low interest rates is that Wall Street banks and large corporations are currently able to borrow for almost nothing and either hoard cash, make acquisitions, or invest in long-term Treasuries for a guaranteed profit. Retirees and other bank depositors effectively subsidize this borrowing and earn almost nothing on their savings. “It’s a distortion, and it favors the large institutions over the smaller ones and Wall Street over the saver,” Hoenig says in an interview. “I just don’t like it. It’s not fair.”...

Calculated Risk

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